A boost in CPU demand
The PC market has been stabilizing as more consumers upgrade their systems. According to Gartner, YoY (year-over-year) PC shipments rose in the second quarter for the first time in six years. Demand also increased in the data center space as cloud companies Google, Microsoft, Amazon, and Facebook, increased their capital spending by 59.0% YoY to $34.7 billion in the first half of 2018.
According to IDC (International Data Corporation), server shipments rose 20.5% YoY to 2.9 million units in the second quarter, indicating strong demand in the market.
Intel faces CPU supply constraints
Intel (INTC) is a leader in the computer and server CPU (central processing unit) market with a 90.0% market share. It has three manufacturing facilities producing 14nm (nanometer) CPUs.
In 2018, the company brought the production of baseband modems for Apple’s (AAPL) iPhones in-house. The chip maker has been transitioning to the 10nm node but delayed volume production of the node due to yield issues. This limited Intel’s manufacturing capacity, which prevented the company from meeting the surprise increase in CPU demand and led to a supply shortage.
Intel has increased its 2018 capital spending by $1.0 billion, but it should take time for the additional capacity to come online. In this constrained environment, some analysts believe that Intel would give priority to its high-margin server CPUs to meet the demand for its biggest customers.
This growing demand and constrained supply could force PC vendors to cut their PC shipments targets for the second half of the year. This reduced supply is expected to negatively impact Micron’s (MU) inventory levels as the demand for PC DRAM (dynamic random-access memory) falls.
Next, we’ll look at Micron’s inventory.
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